Chegg vs ChatGPT: How an edtech giant lost its business to AI
Once a go-to platform for students seeking homework help, Chegg is now facing a significant decline, largely attributed to the emergence of OpenAI’s ChatGPT. The US-based edtech company has suffered a staggering loss of an estimated $14.5 billion in value, with its stock plummeting by 99% from its 2021 peak. Furthermore, Chegg has witnessed a loss of over half a million paid subscribers and had to lay off a quarter of its workforce, amounting to 441 employees.
The Rise of Chegg
Back in 2000, a University of Iowa student named Josh Carlson initiated an online messaging forum for students, naming it CheggPost by combining 'chicken' and 'egg'. This venture later evolved as Chegg, focusing on textbook rentals and expanding into online study guides. Over the years, Chegg acquired edtech startups like Cramster, diversifying its services to provide pre-written answers to common homework questions.
Under the leadership of Dan Rosenweig, a former Yahoo executive, Chegg introduced Chegg Study, a subscription-based service offering on-demand answers for a monthly fee. This model gained significant traction, especially during the COVID-19 pandemic, as students shifted towards virtual learning.
The Challenge from ChatGPT
Despite its earlier success, Chegg faced a major setback with the introduction of ChatGPT in 2022. This AI-powered chatbot, equipped with vast data and internet information, offered instant and free solutions to students' queries, leading to a significant migration of users from Chegg to ChatGPT.
Surveys indicated that a majority of college students preferred using ChatGPT over Chegg for academic assistance. While ChatGPT's capabilities were lauded for their speed and accessibility, concerns were raised about the accuracy of its responses, given the tendency of large language models (LLMs) to produce incorrect information.
The Fall of Chegg and Attempted Recovery
In response to the threat posed by ChatGPT, Chegg attempted to develop its AI solutions, culminating in the proposed Cheggmate project. This initiative aimed to leverage GPT-4 technology to enhance Chegg's answer-generation capabilities using its extensive database. However, these efforts failed to curb the decline in Chegg's subscriber base, leading to a significant drop in its stock value.
Despite collaborating with Scale AI to build additional AI systems, Chegg's struggle to retain students and investors persisted. The company's change in leadership and focus on AI-assisted answers and counseling services reflect its attempt to adapt to the evolving edtech landscape dominated by AI offerings.
